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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________________
TEXAS UTILITIES COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-3591 No. 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
TEXAS UTILITIES ELECTRIC COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 0-11442 No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
_____________________
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
COMMON STOCK OUTSTANDING AT OCTOBER 31, 1995:
Texas Utilities Company: 225,841,037 shares, without par value.
Texas Utilities Electric Company: 156,800,000 shares, without par value.
THIS COMBINED FORM 10-Q IS FILED SEPARATELY BY TEXAS UTILITIES COMPANY AND
TEXAS UTILITIES ELECTRIC COMPANY. INFORMATION CONTAINED HEREIN RELATING TO AN
INDIVIDUAL REGISTRANT IS FILED BY THAT REGISTRANT ON ITS OWN BEHALF EXCEPT THAT
THE INFORMATION WITH RESPECT TO TEXAS UTILITIES ELECTRIC COMPANY, OTHER THAN
THE FINANCIAL STATEMENTS OF TEXAS UTILITIES ELECTRIC COMPANY, IS FILED BY EACH
OF TEXAS UTILITIES ELECTRIC COMPANY AND TEXAS UTILITIES COMPANY. NEITHER TEXAS
UTILITIES ELECTRIC COMPANY NOR TEXAS UTILITIES COMPANY MAKES ANY
REPRESENTATIONS AS TO INFORMATION FILED BY THE OTHER REGISTRANT.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Nine and Twelve Months Ended September 30, 1995 and 1994 . . . . 3
Condensed Statements of Consolidated Cash Flows
Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . 5
TEXAS UTILITIES ELECTRIC COMPANY
Condensed Statements of Income
Three, Nine and Twelve Months Ended September 30, 1995 and 1994 . . . . 7
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . 8
Condensed Balance Sheets
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . 9
NOTES TO CONDENSED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 11
INDEPENDENT ACCOUNTANTS' REPORTS . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------- ----------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES . . . . . . . . . . . . . $1,775,669 $1,702,019 $4,373,932 $4,442,855 $5,594,620 $5,692,639
OPERATING EXPENSES
Fuel and purchased power . . . . . . . 490,817 504,547 1,273,686 1,356,136 1,646,642 1,795,392
Operation . . . . . . . . . . . . . . . 206,530 215,289 606,008 642,622 835,657 867,224
Maintenance . . . . . . . . . . . . . . 68,921 70,036 203,722 225,357 283,306 323,153
Depreciation and amortization . . . . . 139,778 137,698 417,937 411,395 556,081 510,130
Federal income taxes . . . . . . . . . 195,395 163,083 320,029 287,807 349,217 331,762
Taxes other than income . . . . . . . . 126,924 122,416 396,231 415,122 540,253 555,423
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses . . . . . . . 1,228,365 1,213,069 3,217,613 3,338,439 4,211,156 4,383,084
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . 547,304 488,950 1,156,319 1,104,416 1,383,464 1,309,555
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction . . . . . . . . . 5 3,194 (43) 9,174 1,557 13,288
Impairment of assets (Note 6) . . . . . (1,233,320) -- (1,233,320) -- (1,233,320) --
Other income and deductions -- net . . 5,202 6,463 14,326 22,702 19,228 28,210
Federal income taxes . . . . . . . . . 428,381 (2,087) 422,719 (6,736) 419,812 (8,369)
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss) . . . . . . . (799,732) 7,570 (796,318) 25,140 (792,723) 33,129
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME (LOSS) . . . . . . . . . . . . . (252,428) 496,520 360,001 1,129,556 590,741 1,342,684
---------- ---------- ---------- ---------- ---------- ----------
INTEREST CHARGES
Interest on mortgage bonds . . . . . . 128,957 139,318 401,185 429,612 539,117 581,582
Interest on other long-term debt . . . 27,162 22,653 77,567 69,973 100,118 95,959
Other interest . . . . . . . . . . . . 16,632 18,871 47,617 52,370 62,056 61,295
Allowance for borrowed funds used
during construction . . . . . . . . . (4,596) (2,697) (14,409) (7,819) (17,852) (10,916)
---------- ---------- ---------- ---------- ---------- ----------
Total interest charges . . . . . . . . 168,155 178,145 511,960 544,136 683,439 727,920
PREFERRED STOCK DIVIDENDS OF SUBSIDIARY . . . 21,133 24,125 65,914 78,197 89,600 106,334
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME (LOSS) . . . . . . . $ (441,716) $ 294,250 $ (217,873) $ 507,223 $ (182,298) $ 508,430
========== ========== ========== ========== ========== ==========
Average shares of common stock
outstanding (thousands) . . . . . . . . . . 225,841 225,841 225,841 225,831 225,841 225,452
Earnings (loss) and dividends per share
of common stock:
Earnings (loss)(on average shares
outstanding) . . . . . . . . . . . . . $(1.96) $1.30 $(0.96) $2.25 $(0.81) $2.26
Dividends declared per share of
common stock . . . . . . . . . . . . $ 0.77 $0.77 $ 2.31 $2.31 $ 3.08 $3.08
See Accompanying Notes to Condensed Financial Statements.
3
4
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
---------- ----------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (217,873) $ 507,223
Adjustments to reconcile consolidated net income (loss) to cash provided
by operating activities:
Depreciation and amortization (including amounts charged to fuel) . . . . . . 534,265 536,735
Deferred federal income taxes -- net . . . . . . . . . . . . . . . . . . . . . (250,969) 218,306
Federal investment tax credits -- net . . . . . . . . . . . . . . . . . . . . (17,015) (20,458)
Allowance for equity funds used during construction . . . . . . . . . . . . . 43 (9,174)
Impairment of assets (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . 1,233,320 --
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (110,407) (55,393)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,249 15,946
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,170 (28,830)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . 63,961 (26,127)
Other working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,532) (210,050)
Over-recovered fuel revenue -- net of deferred taxes . . . . . . . . . . . . 60,543 91,598
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,280) 45,318
---------- ----------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . 1,304,475 1,065,094
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,905 378,340
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 --
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 62,102
Retirement of long-term debt and preferred stock . . . . . . . . . . . . . . . . . (790,413) (1,125,153)
Change in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122,089) 358,015
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (521,759) (520,524)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . (67,890) (19,201)
---------- ----------
Cash used in financing activities . . . . . . . . . . . . . . . . . . . . (868,246) (866,421)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (307,254) (310,955)
Allowance for equity funds used during construction (excluding amount
for nuclear fuel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43) 3,845
Change in construction receivables/payables -- net . . . . . . . . . . . . . . . . (317) (1,102)
Non-utility property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,260) (15,457)
Nuclear fuel (excluding allowance for equity funds used during construction) . . . (19,886) (56,302)
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,899) (17,912)
---------- ----------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . (429,659) (397,883)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . 6,570 (199,210)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . 7,426 212,584
---------- ----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE . . . . . . . . . . . . . . . . . . . . . $ 13,996 $ 13,374
========== ==========
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5
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
UTILITY PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,545,765 $16,516,326
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,589,238 1,573,634
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,220,474 4,048,867
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,039 456,212
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,791,516 22,595,039
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 5,361,830 5,023,003
----------- -----------
Utility plant in service less accumulated depreciation . . . . . . . . 17,429,686 17,572,036
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 266,149 1,060,731
Nuclear fuel (net of accumulated amortization: 1995 -- $271,799,000;
1994 -- $205,420,000) . . . . . . . . . . . . . . . . . . . . . . . . . 252,470 298,964
Held for future use . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,323 46,197
----------- -----------
Utility plant less accumulated depreciation and amortization . . . . . 17,974,628 18,977,928
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 1,308,460 1,308,460
----------- -----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . 16,666,168 17,669,468
----------- -----------
INVESTMENTS
Non-utility property (Note 7) . . . . . . . . . . . . . . . . . . . . . . 418,732 569,337
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,287 122,906
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . 577,019 692,243
----------- -----------
CURRENT ASSETS
Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,996 7,426
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876 1,002
Accounts receivable:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,366 201,687
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,216 38,712
Allowance for uncollectible accounts . . . . . . . . . . . . . . . . . . (5,871) (5,095)
Inventories -- at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . 194,724 194,271
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,960 145,662
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,190 21,629
Other prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,500 41,871
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . 37,061 37,113
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 14,070 11,216
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 794,088 695,494
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets:
Debt reacquisition costs . . . . . . . . . . . . . . . . . . . . . . . . 339,213 284,563
Cancelled lignite unit costs . . . . . . . . . . . . . . . . . . . . . . 15,977 18,049
Rate case costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,884 64,862
Litigation and settlement costs . . . . . . . . . . . . . . . . . . . . 72,685 72,685
Voluntary retirement/severance program . . . . . . . . . . . . . . . . . 163,339 184,340
Recoverable deferred federal income taxes -- net . . . . . . . . . . . . 1,124,920 1,201,688
Other regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . 14,846 15,939
Under-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . -- 29,860
Other deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . 85,482 36,902
----------- -----------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . 1,879,346 1,908,888
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 72,685 72,685
----------- -----------
Net deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . 1,806,661 1,836,203
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,843,936 $20,893,408
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
5
6
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares -- 225,841,037 . . . . . . . . . . . . . . . . . . . $ 4,804,867 $ 4,798,797
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 954,900 1,691,250
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 5,759,767 6,490,047
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . 855,869 870,190
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 275,645 387,482
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . 7,884,711 7,888,413
----------- -----------
Total capitalization 14,775,992 15,636,132
----------- -----------
CURRENT LIABILITIES
Notes payable -- commercial paper . . . . . . . . . . . . . . . . . . . . 241,797 363,886
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . 59,297 74,610
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,446 219,661
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,960 197,564
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,232 56,391
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,483 243,753
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,776 183,545
Over-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . 63,626 --
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 63,412 95,329
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,431,029 1,434,739
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . 2,537,473 2,852,462
Unamortized federal investment tax credits . . . . . . . . . . . . . . . 628,547 679,104
Other deferred credits and noncurrent liabilities . . . . . . . . . . . . 470,895 290,971
----------- -----------
Total deferred credits and other noncurrent liabilities . . . . . . 3,636,915 3,822,537
COMMITMENTS AND CONTINGENCIES (Note 7)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,843,936 $20,893,408
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
6
7
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES . . . . . . . . . . . . . . . $1,761,378 $1,687,405 $4,336,395 $4,404,384 $5,545,186 $5,642,277
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power . . . . . . . . . . 508,811 522,008 1,325,640 1,408,531 1,715,602 1,867,844
Operation . . . . . . . . . . . . . . . . . . 193,472 199,310 570,943 596,798 787,202 806,458
Maintenance . . . . . . . . . . . . . . . . . 66,626 67,393 197,857 218,730 274,886 311,769
Depreciation and amortization . . . . . . . . 137,388 135,394 410,816 404,515 546,836 501,003
Federal income taxes . . . . . . . . . . . . 200,133 168,493 335,157 303,411 370,211 352,295
Taxes other than income . . . . . . . . . . . 120,781 116,269 377,803 396,160 516,073 531,055
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . 1,227,211 1,208,867 3,218,216 3,328,145 4,210,810 4,370,424
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . 534,167 478,538 1,118,179 1,076,239 1,334,376 1,271,853
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction . . . . . . . . . . . . -- 3,182 (58) 9,150 1,534 13,259
Impairment of assets (Note 6) . . . . . . . . (486,350) -- (486,350) -- (486,350) --
Other income and deductions -- net . . . . . 3,213 2,690 8,255 7,324 11,091 5,665
Federal income taxes . . . . . . . . . . . . 169,047 (1,214) 167,455 (3,294) 166,527 (2,715)
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss) . . . . . . . . . (314,090) 4,658 (310,698) 13,180 (307,198) 16,209
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME . . . . . . . . . . . . . . . . . . 220,077 483,196 807,481 1,089,419 1,027,178 1,288,062
---------- ---------- ---------- ---------- ---------- ----------
INTEREST CHARGES
Interest on mortgage bonds . . . . . . . . . 128,920 139,273 401,067 429,476 538,954 581,401
Interest on other long-term debt . . . . . . 12,880 8,035 34,302 24,176 42,309 34,449
Other interest . . . . . . . . . . . . . . . 14,700 17,436 42,367 49,320 55,677 57,317
Allowance for borrowed funds used
during construction . . . . . . . . . . . . (4,595) (2,694) (14,404) (7,811) (17,845) (10,906)
---------- ---------- ---------- ---------- ---------- ----------
Total interest charges . . . . . . . . . . 151,905 162,050 463,332 495,161 619,095 662,261
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . 68,172 321,146 344,149 594,258 408,083 625,801
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . 21,133 24,125 65,914 78,197 89,600 106,334
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS . . . . . . . . . . . . . . . . $ 47,039 $ 297,021 $ 278,235 $ 516,061 $ 318,483 $ 519,467
========== ========== ========== ========== ========== ==========
See Accompanying Notes to Condensed Financial Statements.
7
8
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- ---------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 344,149 $ 594,258
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 511,400 510,619
Deferred federal income taxes -- net . . . . . . . . . . . . . . . . . . . . . . 8,019 235,839
Federal investment tax credits -- net . . . . . . . . . . . . . . . . . . . . . (15,834) (18,409)
Allowance for equity funds used during construction . . . . . . . . . . . . . . 58 (9,150)
Impairment of assets (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . 486,350 --
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,004) (56,614)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345 9,898
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,323) (39,767)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . 50,287 (1,270)
Other working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,308) (211,785)
Over-recovered fuel revenue -- net of deferred taxes . . . . . . . . . . . . . 60,543 91,598
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,873 32,322
--------- ---------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . 1,313,555 1,137,539
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,905 378,340
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 --
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 249,600
Retirement of long-term debt and preferred stock . . . . . . . . . . . . . . . . . (771,852) (1,032,436)
Change in notes receivable -- affiliates . . . . . . . . . . . . . . . . . . . . . (24,851) --
Change in notes payable -- parent . . . . . . . . . . . . . . . . . . . . . . . . -- (59,898)
Change in notes payable -- other . . . . . . . . . . . . . . . . . . . . . . . . . (122,089) 308,015
Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (68,228) (81,759)
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (540,960) (535,440)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . (67,890) (18,490)
--------- ---------
Cash used in financing activities . . . . . . . . . . . . . . . . . . . . . (961,965) (792,068)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (292,315) (295,873)
Allowance for equity funds used during construction (excluding amount for
nuclear fuel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58) 3,820
Change in construction receivables/payables -- net . . . . . . . . . . . . . . . . (427) (263)
Non-utility property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 (3)
Nuclear fuel (excluding allowance for equity funds used during construction) . . . (19,886) (56,302)
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,691) (16,746)
--------- ---------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (345,341) (365,367)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . 6,249 (19,896)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . 6,699 27,929
--------- ---------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE . . . . . . . . . . . . . . . . . . . . . $ 12,948 $ 8,033
========= =========
See Accompanying Notes to Condensed Financial Statements.
8
9
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
ELECTRIC PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,588,381 $15,553,422
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,583,210 1,567,617
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,165,571 3,997,061
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,035 425,973
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,745,197 21,544,073
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 4,888,612 4,560,054
----------- -----------
Electric plant in service less accumulated depreciation . . . . . . . 16,856,585 16,984,019
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 249,168 971,429
Nuclear fuel (net of accumulated amortization: 1995 -- $271,799,000;
1994 -- $205,420,000) . . . . . . . . . . . . . . . . . . . . . . . . . 252,470 298,964
Held for future use . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,323 43,550
----------- -----------
Electric plant less accumulated depreciation and amortization . . . . 17,384,546 18,297,962
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 1,308,460 1,308,460
----------- -----------
Net electric plant . . . . . . . . . . . . . . . . . . . . . . . . . . 16,076,086 16,989,502
----------- -----------
INVESTMENTS
Non-utility property (Note 7) . . . . . . . . . . . . . . . . . . . . . . 332,219 4,383
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,393 66,702
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . 431,612 71,085
----------- -----------
CURRENT ASSETS
Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,948 6,699
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 527
Notes receivable - affiliates . . . . . . . . . . . . . . . . . . . . . 53,445 28,594
Accounts receivable:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,539 196,507
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,616 26,869
Allowance for uncollectible accounts . . . . . . . . . . . . . . . . . . (5,801) (5,026)
Inventories -- at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . 180,730 178,977
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,427 83,525
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,012 21,614
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . 37,150 37,202
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 11,608 16,379
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 739,226 591,867
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets:
Debt reacquisition costs . . . . . . . . . . . . . . . . . . . . . . . . 336,856 281,023
Cancelled lignite unit costs . . . . . . . . . . . . . . . . . . . . . . 15,977 18,049
Rate case costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,884 64,862
Litigation and settlement costs . . . . . . . . . . . . . . . . . . . . 72,685 72,685
Voluntary retirement/severance program . . . . . . . . . . . . . . . . . 138,580 156,397
Recoverable deferred federal income taxes -- net . . . . . . . . . . . . 1,132,198 1,208,833
Other regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . 11,964 12,654
Under-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . -- 29,860
Other deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . 89,064 22,866
----------- -----------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . 1,860,208 1,867,229
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 72,685 72,685
----------- -----------
Net deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . 1,787,523 1,794,544
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,034,447 $19,446,998
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
9
10
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares -- 156,800,000 . . . . . . . . . . . . . . . . . . . $ 4,732,305 $ 5,166,125
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117,586 948,136
------------ ------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 5,849,891 6,114,261
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . 855,869 870,190
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 275,645 387,482
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . 7,234,493 7,220,641
------------ ------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . 14,215,898 14,592,574
------------ ------------
CURRENT LIABILITIES
Notes payable -- commercial paper . . . . . . . . . . . . . . . . . . . . 241,797 363,886
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . 41,434 56,037
Accounts payable:
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,516 97,443
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,242 113,144
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,062 23,600
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,604 55,726
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,108 234,840
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,813 159,794
Over-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . 63,626 --
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 47,416 71,950
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,184,618 1,176,420
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . 2,760,388 2,761,772
Unamortized federal investment tax credits . . . . . . . . . . . . . . . 614,833 664,209
Other deferred credits and noncurrent liabilities . . . . . . . . . . . . 258,710 252,023
------------ ------------
Total deferred credits and other noncurrent liabilities . . . . . . 3,633,931 3,678,004
COMMITMENTS AND CONTINGENCIES (Note 7)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,034,447 $ 19,446,998
============ ============
See Accompanying Notes to Condensed Financial Statements.
10
11
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation -- The condensed financial statements of Texas
Utilities Company and Subsidiaries (Company) and Texas Utilities Electric
Company (TU Electric) have been prepared on the same basis as those in the
respective 1994 Annual Report on Form 10-K of such company and, in the opinion
of the Company or TU Electric, as the case may be, all adjustments
(constituting only normal recurring accruals) necessary to a fair statement of
the results of operation have been included therein. The statements are
presented pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The financial statements and notes should be considered in conjunction with the
financial statements, and the notes thereto, of the Company and TU Electric
included in their respective 1994 Annual Reports on Form 10-K, and the
information under Management's Discussion and Analysis of Financial Condition
and Results of Operation herein. The Company and TU Electric each believes
that its respective disclosures are adequate to make the information presented
not misleading.
Certain financial statement items for 1994 have been reclassified to
conform to the 1995 presentation.
THE COMPANY
Consolidation -- The consolidated financial statements include the Company
and all of its subsidiaries (System Companies):
TU Electric Texas Utilities Services Inc. (TU Services)
Southwestern Electric Service Company (SESCO) Texas Utilities Properties Inc. (TU Properties)
Texas Utilities Fuel Company (Fuel Company) Texas Utilities Communications Inc. (TU Communications)
Texas Utilities Mining Company (Mining Company) Basic Resources Inc. (Basic)
Chaco Energy Company (Chaco)
In March 1995, TU Communications, a new wholly-owned subsidiary of the
Company, was incorporated under the laws of the State of Delaware. TU
Communications was organized to provide access to advanced telecommunications
technology, primarily for the System Companies' expected expanding energy
services business.
In November 1995, the Company formed a new subsidiary, Texas Utilities
Australia Pty. Ltd., in connection with its agreement to acquire Eastern
Energy Limited. (See Note 8.)
All significant intercompany items and transactions have been eliminated in
consolidation.
TU ELECTRIC
In September 1995, TU Electric established two financing subsidiaries, TU
Electric Capital I and TU Electric Capital II, in the form of statutory
Delaware business trusts, for the purpose of issuing securities in connection
with the proposed sale or exchange of TU Electric's depositary shares, each
representing 1/4 share of Cumulative Preferred Stock, $8.20 Series, $7.50
Series and $7.22 Series.
2. SHORT-TERM FINANCING
THE COMPANY AND TU ELECTRIC
At September 30, 1995, the Company and TU Electric had joint lines of
credit aggregating $1,000,000,000 under credit facility agreements (Agreements)
with a group of commercial banks. The Agreements have two facilities. The
Company pays a fee for each facility. Facility A provides for borrowings up to
$300,000,000 and terminates April 28, 1996. Facility B provides for borrowings
up to $700,000,000 and terminates April 28, 2000. The Company's borrowings
under the Agreements are limited to $400,000,000. Borrowings, if any, under
the Agreements will be used for working capital and other corporate purposes,
including commercial paper backup.
11
12
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITALIZATION
COMMON STOCK
THE COMPANY
In 1990, the Company's Employee Thrift Plan (Thrift Plan) borrowed
$250,000,000 in the form of a note payable from an outside lender and purchased
7,142,857 shares of common stock (LESOP Shares) from the Company in connection
with the leveraged employee stock ownership provision of the Thrift Plan.
LESOP Shares are held by the trustee until allocated to Thrift Plan
participants when required to meet the System Companies' obligations under the
terms of the Thrift Plan. The Company has purchased the note from the outside
lender, which has been recorded as a reduction to common stock equity. The
Thrift Plan uses dividends on the LESOP Shares purchased and contributions from
the System Companies, if required, to repay interest and principal on the note.
Common stock equity increases at such time as LESOP Shares are allocated to
participants' accounts even though shares of common stock outstanding include
unallocated LESOP Shares held by the trustee. Allocations to participants'
accounts during the nine months ended September 30, 1995, increased common
stock equity by $6,069,770.
PREFERRED STOCK
TU ELECTRIC
At September 30, 1995 and December 31, 1994, TU Electric had 17,000,000
shares of preferred stock authorized by its articles of incorporation of which
11,514,553 and 12,787,228 shares were issued and outstanding, respectively.
During the nine months ended September 30, 1995, TU Electric redeemed or
purchased 1,147,675 shares of preferred stock with annual dividend rates
ranging from $7.22 to $10.375. In addition, TU Electric redeemed 125,000
shares on May 1, 1995 and 125,000 shares on November 1, 1995 of its $9.64
Cumulative Preferred Stock, which fulfills its mandatory redemption
requirements until May 1, 1996.
LONG-TERM DEBT
TU ELECTRIC
TU Electric issued the following long-term debt during the nine months
ended September 30, 1995:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ ------------ ---------
Term credit agreement . . . . . . . . . . . . . . . . . . . . . . $300,000,000 (a) 1997
Pollution control revenue bonds . . . . . . . . . . . . . . . . . 333,905,000 (b) 2030
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $633,905,000
============
- ------------------
(a) At September 30, 1995, borrowings under the term credit agreement carried
annual interest rates of 6.4875% for a six-month period ending in November
and 6.425% for a six-month period ending in December.
(b) All of such bonds currently bear interest in a daily mode and are secured
by an irrevocable letter of credit. Interest rates have ranged from 1.80%
to 5.25% per annum.
TU Electric redeemed or reacquired the following long-term debt during the
nine months ended September 30, 1995:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ ------------ ---------
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . $361,150,000 9-7/8% to 10-5/8% 2019-2020
Taxable pollution control revenue bonds . . . . . . . . . . . . . 9,000,000 8.85%* 2021
Pollution control revenue bonds . . . . . . . . . . . . . . . . . 252,235,000 7-3/4% to 9-7/8% 2007-2018
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $622,385,000
============
- ------------------
* The remaining $91,000,000 of Taxable Series 1991 was remarketed on June 1,
1995, in a flexible mode for rate periods up to 180 days and is secured by
an irrevocable letter of credit.
12
13
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITALIZATION -- (CONCLUDED)
In October 1995, TU Electric prepaid the remaining $178,960,000 aggregate
principal amount of its promissory note issued to Brazos Electric Power
Cooperative in 1988.
4. RETAINED EARNINGS
THE COMPANY
The articles of incorporation and the mortgages, as supplemented, of TU
Electric and SESCO contain provisions which, under certain conditions, restrict
distributions on or acquisitions of their common stock. At September 30, 1995,
$139,062,000 of the Company's retained earnings was restricted as a result of
such provisions.
5. RATE PROCEEDINGS
TU ELECTRIC
DOCKET 11735
In July 1994, TU Electric filed a petition in the 200th Judicial District
Court of Travis County, Texas to seek judicial review of the final order of the
Public Utility Commission of Texas (PUC) granting a $449 million, or 9.0%, rate
increase in connection with TU Electric's January 1993 rate increase request of
$760 million, or 15.3% (Docket 11735). Other parties to the PUC proceedings
also filed appeals with respect to various portions of the order. TU Electric
is unable to predict the outcome of such appeals.
Docket 9300
The PUC's final order (Order) in connection with TU Electric's January 1990
rate increase request (Docket 9300) was reviewed by the 250th Judicial District
Court of Travis County, Texas (District Court) and thereafter was appealed to
the Court of Appeals for the Third District of Texas (Court of Appeals). In
June 1994, the Court of Appeals affirmed a prudence disallowance of $472
million provided for in the Order with respect to TU Electric's Comanche Peak
nuclear generating station (Comanche Peak), reversed and remanded the portion
of the District Court's judgment that had affirmed a disallowance of $25
million relating to TU Electric's reacquisitions of the minority owner
interests in Comanche Peak nuclear fuel, and affirmed the District Court's
remand of the remainder of the disallowance of $884 million relating to the
reacquisitions of such minority owner interests. Therefore, the Court of
Appeals remanded an aggregate of $909 million of disallowances with respect to
TU Electric's reacquisitions of minority owner interests in Comanche Peak to
the PUC for reconsideration and ordered that such reconsideration be on the
basis of a prudent investment standard.
In addition, the Court of Appeals reversed the District Court's finding
that the PUC erred in ordering a refund of $2.5 million with respect to certain
fuel gas costs. Also, the Court of Appeals specified that, on remand, the PUC
will be required to re-evaluate the appropriate level of TU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing and to reconsider whether the $442
million revenue increase provided for in the PUC's final order remains the
benchmark in light of this re-examination.
The Court of Appeals also ruled in the appeal of TU Electric's Docket 9300
rate case that prior court rulings required that the tax benefits generated by
costs, including capital costs, not allowed in rates, must be used to reduce
rates charged to customers, reversing the District Court's decision. TU
Electric believes that such ruling is erroneous and not consistent with the
Texas Public Utility Regulatory Act. TU Electric contended that, according to
a Private Letter Ruling issued to TU Electric by the Internal Revenue Service
(IRS) with respect to investment tax credits, such ratemaking treatment, to the
extent related to property classified for tax purposes as public utility
property, would result in a violation of the normalization rules under the
Internal Revenue Code of 1986, as amended. In September 1995, the IRS issued
another Private Letter Ruling to the Company, which ruled that such ratemaking
treatment would also violate the normalization
13
14
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. RATE PROCEEDINGS -- (CONTINUED)
rules applicable to depreciation. Violation of the normalization rules would
result in a significant adverse effect on TU Electric's results of operation
and liquidity. If there are normalization violations, TU Electric will forfeit
its investment tax credits that remain unamortized as of the date of the
violation, and will also forfeit the ability to take advantage of accelerated
tax depreciation in years to which the violative order relates. This could
result in payments to the IRS of up to $1.3 billion. TU Electric disagrees with
certain portions of the decision of the Court of Appeals, including
specifically its decision with respect to federal income taxes, and has filed
an appeal to the Supreme Court of Texas. Other parties have also filed appeals
of this decision to the Supreme Court of Texas. TU Electric cannot predict
whether such appeals will be accepted by the Supreme Court of Texas and cannot
predict the outcome of any such appeals or any resulting reconsideration of
these issues on remand by the PUC.
In April 1995, in an appeal of a rate case involving another utility, the
Supreme Court of Texas held that the PUC has considerable discretion in
determining the fair share of consolidated tax savings to be allocated to a
utility and, accordingly, is not required to include losses of unregulated
affiliates in determining such fair share. The Supreme Court of Texas also
held that the PUC could not use the tax benefits generated by disallowed
expenses to reduce rates.
FUEL COST RECOVERY RULE
TU Electric anticipates filing a petition with the PUC in November 1995 to
refund to customers approximately $64 million, including interest, in
over-collected fuel costs for the period June 1995 through September 1995. PUC
approval is expected in December 1995 with the refund to be included in January
1996 billings. In June 1995, TU Electric petitioned the PUC for approval of a
fuel refund to customers of approximately $89 million, including interest, in
over- collected fuel costs for the period June 1994 through May 1995. Such
over-collection was primarily due to lower natural gas prices than previously
anticipated. PUC approval was granted in August 1995 and refunds were included
in September 1995 billings. In August 1994, TU Electric petitioned the PUC for
a recovery of approximately $93 million, including interest, in under-collected
fuel costs for the period July 1993 through June 1994. The PUC approved the
recovery of this amount through a surcharge to customers over a six-month
period beginning in January 1995. The PUC's approval of this surcharge and a
previously approved $147.5 million surcharge for fuel cost recovery for a prior
period have been appealed by certain intervenors to the district courts of
Travis County, Texas. In those appeals, those parties are contending that the
PUC is without authority to allow a fuel cost surcharge without a hearing and
resultant findings that the costs are reasonable and necessary and that the
prices charged to TU Electric by affiliated suppliers are no higher than the
prices charged by those affiliates to others for the same items or class of
items. TU Electric is vigorously defending its position in these appeals but
is unable to predict their outcome.
FLEXIBLE RATE INITIATIVES
TU Electric continues to offer flexible rates in over 160 cities with
original regulatory jurisdiction within its service territory (including the
cities of Dallas and Fort Worth), to existing non-residential retail and
wholesale customers that have viable alternative sources of supply and would
otherwise leave the system. TU Electric also continues to offer an economic
development rider to attract new businesses and to encourage existing customers
to expand their facilities as well as an environmental technology rider. To
date, TU Electric serves 87 commercial, industrial and municipal
flexibly-priced loads, eight economic development loads, and one environmental
technology load under these rates. TU Electric will continue to pursue the
expanded use of flexible rates when such rates are necessary to be
price-competitive.
As a result of recent legislation, flexible retail and wholesale pricing
may be approved by the PUC at levels lower than the utility's approved rates but
higher than the utility's marginal cost. In September 1995, TU Electric filed
an application for such a wholesale rate with the PUC for service to two rural
electric cooperatives it has served since 1963. The proposed rate includes
provisions for a five-year term of service. If approved by the PUC, the
proposed rate will enable TU Electric to retain a combined load of approximately
23 megawatts (MW). The cooperatives have informed TU Electric that they will
transfer their load to alternative suppliers if the proposed rate is not
approved. TU Electric is actively pursuing
14
15
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. RATE PROCEEDINGS -- (CONCLUDED)
several other opportunities through flexible pricing to enhance its ability to
compete for new wholesale loads, as well as to retain existing wholesale loads.
INTEGRATED RESOURCE PLAN
In October 1994, TU Electric filed an application for approval by the PUC
of certain aspects of its Integrated Resource Plan (IRP) for the ten-year period
1995-2004. The IRP includes initiatives that address demand-side management
resources, purchased power, and future generating capacity that includes
renewable energy sources. TU Electric's IRP includes 288 MW of simple-cycle
combustion turbines, 1,514 MW of combined-cycle combustion turbines and 300 MW
of wind or other renewable resources. Assuming these units are financed by TU
Electric using traditional methods, approximately $200 million would be added to
capital expenditures in 1997. Hearings on this application were concluded in
March 1995. In August 1995, the PUC remanded the case for development of a
solicitation plan to test TU Electric's resource proposals in the market place
and to conform the IRP to new state legislation that requires the PUC to adopt a
state-wide integrated resource planning rule by September 1, 1996. The PUC's
decision on the solicitation plan is expected in July 1996.
6. IMPAIRMENT OF ASSETS
THE COMPANY AND TU ELECTRIC
In September 1995, the Company and TU Electric recorded the impairment of
several non-performing assets in accordance with the early adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(Statement 121) which prescribes a methodology for assessing and measuring
impairments in the carrying value of certain assets.
THE COMPANY
The total impairment of the Company's assets, including the partially
completed Twin Oak and Forest Grove lignite-fueled facilities of TU Electric,
and Chaco's coal reserves in New Mexico, as well as several minor assets,
aggregated $802 million after tax. The Company has determined that the Twin
Oak and Forest Grove facilities no longer fit TU Electric's capacity needs due
to changes in load growth patterns and availability of alternative generation.
The impairment of TU Electric's lignite-fueled facilities has been measured
based on management's expectations that these assets will either be sold or
constructed outside the traditional regulated utility business. The Company
has determined that the Chaco coal reserves will no longer be developed through
traditional means due to ample availability of alternative fuels at favorable
prices. Chaco's impairment has been measured based on a significant decrease
in the market value of the coal reserves as determined by an external study
performed and completed in the quarter ended September 30, 1995. A variety of
options are being considered with respect to the Chaco coal reserves. (See Note
7.) The impairment of these assets involved a write-down to their estimated
fair values using a valuation study based on the discounted expected future
cash flows from the respective assets' use. With respect to the other assets
impaired, fair values were determined based on current market values of similar
assets.
TU ELECTRIC
The total impairment of TU Electric's assets, including its partially
completed Twin Oak and Forest Grove lignite-fueled facilities, as well as
several minor assets, aggregated $316 million after tax. TU Electric has
determined that the Twin Oak and Forest Grove facilities no longer fit its
capacity needs due to changes in load growth patterns and availability of
alternative generation. Such impairment has been measured based on
management's expectations that these assets will either be sold or constructed
outside the traditional regulated utility business. The impairment of these
assets involved a write-down to their estimated fair values using a valuation
study based on the discounted expected future cash flows from the respective
assets' use. With respect to the other assets impaired, fair values were
determined based on current market values of similar assets.
15
16
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
THE COMPANY
The Company's construction expenditures for utility related activities,
excluding allowance for funds used during construction (AFUDC) and expenditures
relating to new generating units, are presently estimated at $400 million for
each of the years 1995, 1996 and 1997. Expenditures for nuclear fuel and
non-utility property are presently estimated at $111 million for 1995, $99
million for 1996, and $108 million for 1997.
TU ELECTRIC
TU Electric's construction expenditures for utility related activities,
excluding AFUDC and expenditures relating to new generating units, are
presently estimated at $372 million for each of the years 1995, 1996 and 1997.
Expenditures for nuclear fuel and non-utility property are presently estimated
at $46 million for 1995, $53 million for 1996, and $80 million for 1997.
THE COMPANY AND TU ELECTRIC
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program
are generally revocable subject to reimbursement to manufacturers for
expenditures incurred or other cancellation penalties.
The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders. The timing and amounts of any specific new business investment
opportunities are presently undetermined.
COOLING WATER CONTRACTS
TU ELECTRIC
TU Electric has entered into contracts with public agencies to purchase
cooling water for use in the generation of electric energy. In connection with
certain contracts, TU Electric has agreed, in effect, to guarantee the
principal, $35,000,000 at September 30, 1995, and interest on bonds issued to
finance the reservoirs from which the water is supplied. The bonds mature at
various dates through 2011 and have interest rates ranging from 5-1/2% to 7%.
TU Electric is required to make periodic payments equal to such principal and
interest, including amounts assumed by a third party and reimbursed to TU
Electric. In addition, TU Electric is obligated to pay certain variable costs
of operating and maintaining the reservoirs. TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $84,610,000 remaining principal amount of bonds at September 30, 1995,
issued for similar purposes which had previously been guaranteed by TU
Electric. TU Electric is, however, contingently liable in the unlikely event
of default by the municipality.
CHACO COAL PROPERTIES
THE COMPANY
Chaco has a coal lease agreement for the rights to certain surface mineable
coal reserves located in New Mexico. The agreement provides for minimum
advance royalty payments of approximately $16 million per year through 2017,
covering approximately 228 million tons of coal. The Company has entered into
a surety agreement to assure performance by Chaco with respect to this
agreement. In addition, Chaco has under lease with the federal government
certain coal reserves. A provision in this lease requires that substantial
mining be completed by September 1997. Chaco is currently reviewing its
options with regard to this provision. Because of the present ample
availability of western
16
17
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONCLUDED)
7. COMMITMENTS AND CONTINGENCIES -- (CONCLUDED)
coal at favorable prices from other mines, Chaco has delayed plans to commence
mining operations, and accordingly, is reassessing its alternatives with
respect to its coal properties, including seeking purchasers thereof. (See
Note 6.)
GAS PURCHASE CONTRACTS
THE COMPANY
Fuel Company buys gas under long-term intrastate contracts in order to
assure reliable supply to its customers. Many of these contracts require
minimum purchases ("take-or-pay") of gas. Based on Fuel Company's estimated
gas demand, which assumes normal weather conditions, requisite gas purchases
are expected to substantially satisfy purchase obligations for the year 1995
and thereafter.
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL
TU ELECTRIC
TU Electric has established a reserve, charged to depreciation expense and
included in accumulated depreciation, for the decommissioning of Comanche Peak,
whereby decommissioning costs are being recovered from customers over the life
of the plant and deposited in external trust funds (included in other
investments). At September 30, 1995, such reserve totaled $70,833,000 which
includes an accrual of $13,634,000 and $18,179,000 for the nine and twelve
months ended September 30, 1995, respectively. As of September 30, 1995, the
market value of deposits in the external trust for decommissioning of Comanche
Peak was $79,417,000. Realized earnings on funds deposited in the external
trust are recognized in the reserve. Based on a site-specific study during
1992 using the prompt dismantlement method and then-current dollars,
decommissioning costs for Comanche Peak Unit 1, and Unit 2 and common
facilities were estimated to be $255,000,000 and $344,000,000, respectively.
Decommissioning activities are projected to begin in 2030 and 2032 for Comanche
Peak Unit 1, and Unit 2 and common facilities, respectively. TU Electric is
recovering such costs based upon the 1992 study through its rates placed in
effect under Docket 11735. (See Note 5.)
TU Electric has a contract with the United States Department of Energy for
the future disposal of spent nuclear fuel at a cost of one mill per
kilowatt-hour of Comanche Peak net generation. The disposal fee is included in
nuclear fuel expense.
GENERAL
THE COMPANY
In addition to the above, the Company and its subsidiaries are involved in
various legal and administrative proceedings which, in the opinion of the
Company, should not have a material effect upon its financial position or
results of operation.
8. SUBSEQUENT EVENT
THE COMPANY
In November 1995, the Company announced that it had reached an agreement to
acquire Eastern Energy Limited for $1.55 billion. Eastern Energy Limited is an
Australian electric distribution company serving 470,000 customers, including a
portion of the Melbourne, Victoria metropolitan area. The Company's equity
investment is expected to be approximately $600 million. The remainder of the
acquisition costs are expected to be raised from debt incurred by the newly
acquired company, Eastern Energy Limited.
17
18
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries as of September 30, 1995, and the related
condensed statements of consolidated income for the three-month, nine-month and
twelve-month periods ended September 30, 1995 and 1994, and of consolidated
cash flows for the nine-month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of Texas Utilities Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Utilities Company and
subsidiaries as of December 31, 1994, and the related consolidated statements
of income, retained earnings and cash flows for the year then ended (not
presented herein); and in our report dated March 1, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 7, 1995
18
19
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Electric Company:
We have reviewed the accompanying condensed balance sheet of Texas Utilities
Electric Company as of September 30, 1995, and the related condensed statements
of income for the three-month, nine-month and twelve-month periods ended
September 30, 1995 and 1994, and of cash flows for the nine-month periods ended
September 30, 1995 and 1994. These financial statements are the responsibility
of Texas Utilities Electric Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Texas Utilities Electric Company as of December
31, 1994, and the related statements of income, retained earnings and cash
flows for the year then ended (not presented herein); and in our report dated
March 1, 1995, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1994, is fairly stated in all
material respects in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 7, 1995
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Texas Utilities Company (Company) and Texas Utilities Electric
Company (TU Electric) Annual Reports on Form 10-K for the year 1994. No
significant changes or events which might affect the financial condition of the
Company and its subsidiaries (System Companies) have occurred subsequent to
year-end other than as disclosed in this report.
THE COMPANY
External funds of a permanent or long-term nature are obtained through
sales of common stock, preferred stock and long-term debt by the System
Companies. The capitalization ratios of the Company and its subsidiaries at
September 30, 1995 consisted of approximately 53% long-term debt, 8% preferred
stock and 39% common stock equity.
TU ELECTRIC
The capitalization ratios of TU Electric at September 30, 1995 consisted of
approximately 51% long-term debt, 8% of preferred stock and 41% common stock
equity.
TU Electric had financings totaling $633,905,000 to date in 1995. Proceeds
from such financings were used primarily for the early redemption or
reacquisition of debt and preferred stock. Long-term debt financings to date
in 1995 by TU Electric consisted of:
PRINCIPAL CURRENT
DESCRIPTION AMOUNT INTEREST RATES MATURITY
----------- ------------ ------------------ --------
Term credit agreement . . . . . . . . . . . . . . . . . . . . $300,000,000 6.425% and 6.4875% 1997
Pollution control revenue bonds . . . . . . . . . . . . . . . 333,905,000 1.80% to 5.25% 2030
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $633,905,000
============
TU Electric intends to redeem $6,000,000 of First Mortgage Bonds on
November 14, 1995. Additional early redemptions of long-term debt and
preferred stock may occur from time to time in amounts presently undetermined.
THE COMPANY
To date in 1995, the System Companies redeemed, reacquired or made
principal payments of $982,095,000 (including $963,534,000 for TU Electric) on
long-term debt and preferred stock.
The System Companies expect to issue additional debt and equity securities
for sale or exchange as needed, including (i) the possible future sale by TU
Electric of up to $300,000,000 of Medium-Term Notes, Series D and up to
$350,000,000 of First Mortgage Bonds currently registered with the Securities
and Exchange Commission for offering pursuant to Rule 415 under the Securities
Act of 1933, (ii) the possible future sale by TU Electric of 250,000 shares of
Cumulative Preferred Stock ($100 liquidation value) similarly registered and
(iii) the exchange of Preferred Securities of TU Electric Capital I and II,
with or without an additional cash component, or cash only for TU Electric's
depositary shares, each representing 1/4 share of Cumulative Preferred Stock.
THE COMPANY AND TU ELECTRIC
The Company and TU Electric have joint lines of credit aggregating
$1,000,000,000 under credit facility agreements (Agreements) with a group of
commercial banks. The Agreements have two facilities. The Company pays a fee
for each facility. Facility A provides for borrowings up to $300,000,000 and
terminates April 28, 1996. Facility B provides for borrowings up to
$700,000,000 and terminates April 28, 2000. The Company's borrowings under the
Agreements are limited to $400,000,000. Borrowings, if any, under the
Agreements will be used for working capital and other corporate purposes,
including commercial paper backup.
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
In order to remain competitive, the Company and TU Electric are
aggressively managing their operating costs and capital expenditures through
streamlined business processes and are developing and implementing strategies
to address an increasingly competitive environment. These strategies include
initiatives to improve their return on corporate assets and to maximize
shareholder value through new marketing programs, creative rate design, and new
business opportunities. Additional initiatives under consideration include the
potential disposition or alternative utilization of existing assets and the
restructuring of strategic business units. The Company and TU Electric are
contemplating alternative uses for their investment in certain assets,
including TU Electric's partially completed Twin Oak and Forest Grove
facilities and Chaco's New Mexico coal reserves, which, based upon management's
expectations, might include sale of the reserves or facilities or construction
outside the traditional regulated business. In September 1995, the Company and
TU Electric determined that the partially completed Twin Oak and Forest Grove
facilities no longer fit TU Electric's capacity needs due to continuing changes
in load growth patterns and availability of alternative generation. Also in
September 1995, the Company determined that the Chaco coal reserves would no
longer be developed through traditional means due to ample availability of
alternative fuels at favorable prices. A variety of options are being
considered with respect to the Chaco coal reserves (see Note 7 to Condensed
Financial Statements).
THE COMPANY
On October 13, 1995, the Company announced a modification of its dividend
policy as a part of a financial strategy supporting the Company's overall
business plan. As a result, a quarterly dividend of $0.50 per share payable
January 2, 1996, was declared by the Company's Board of Directors. The
previous quarterly dividend was $0.77 per share. The Company plans to use the
additional cash flow to buy back TU Electric's long-term debt and preferred
stock, buy back up to $250 million of the Company's common stock over the next
three years and fund attractive investment opportunities as they become
available.
In November 1995, the Company announced that it had reached an agreement
to acquire Eastern Energy Limited for $1.55 billion. Eastern Energy Limited is
an Australian electric distribution company serving 470,000 customers,
including a portion of the Melbourne, Victoria metropolitan area. The
Company's equity investment, to be funded from internal cash generation, is
expected to be approximately $600 million. The remainder of the acquisition
costs are expected to be raised from debt incurred by the newly acquired
company, Eastern Energy Limited.
THE COMPANY AND TU ELECTRIC
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program
are generally revocable subject to reimbursement to manufacturers for
expenditures incurred or other cancellation penalties.
The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders. The timing and amounts of any specific new business investment
opportunities are presently undetermined.
TU ELECTRIC
TU Electric's capital requirements have not been significantly affected by
the requirements of the Clean Air Act. Although TU Electric is unable to fully
determine the cost of compliance with the Clean Air Act, it is not expected to
have a significant impact. Any additional required capital costs, as well as
any increased operating costs, associated with these new requirements or
compliance measures are expected to be recoverable through rates, as similar
costs have been recovered in the past. TU Electric's environmental
expenditures for 1995 are estimated to be $58 million.
21
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONCLUDED)
The Court of Appeals ruled in the appeal of TU Electric's Docket 9300 rate
case that prior court rulings required that the tax benefits generated by
costs, including capital costs, not allowed in rates, must be used to reduce
rates charged to customers, reversing the District Court's decision. TU
Electric believes that such ruling is erroneous and not consistent with the
Texas Public Utility Regulatory Act. TU Electric contended that, according to
a Private Letter Ruling issued to TU Electric by the Internal Revenue Service
(IRS) with respect to investment tax credits, such ratemaking treatment, to the
extent related to property classified for tax purposes as public utility
property, would result in a violation of the normalization rules under the
Internal Revenue Code of 1986, as amended. In September 1995, the IRS issued
another Private Letter Ruling to the Company, which ruled that such ratemaking
treatment would also violate the normalization rules applicable to
depreciation. Violation of the normalization rules would result in a
significant adverse effect on TU Electric's results of operation and liquidity.
If there are normalization violations, TU Electric will forfeit its investment
tax credits that remain unamortized as of the date of the violation, and will
also forfeit the ability to take advantage of accelerated tax depreciation in
years to which the violative order relates. This could result in payments to
the IRS of up to $1.3 billion. TU Electric disagrees with certain portions of
the decision of the Court of Appeals, including specifically its decision with
respect to federal income taxes, and has filed an appeal to the Supreme Court
of Texas. Other parties have also filed appeals of this decision to the
Supreme Court of Texas. TU Electric cannot predict whether such appeals will
be accepted by the Supreme Court of Texas and cannot predict the outcome of any
such appeals or any resulting reconsideration of these issues on remand by the
Public Utility Commission of Texas (PUC).
In April 1995, in an appeal of a rate case involving another utility, the
Supreme Court of Texas held that the PUC has considerable discretion in
determining the fair share of consolidated tax savings to be allocated to a
utility and, accordingly, is not required to include losses of unregulated
affiliates in determining such fair share. The Supreme Court of Texas also
held that the PUC could not use the tax benefits generated by disallowed
expenses to reduce rates.
For other information regarding Rate Proceedings, see Note 5 to Condensed
Financial Statements.
THE COMPANY AND TU ELECTRIC
The National Energy Policy Act of 1992 (Energy Act) addresses a wide range
of energy issues and is intended to increase competition in electric generation
and broaden access to electric transmission systems. The Public Utility
Regulatory Act, as amended and effective September 1, 1995, requires the PUC to
have rules in place within 180 days governing comparable wholesale open access
transmission services. To meet this requirement, the PUC has initiated a
generic rule making proceeding to address wholesale transmission issues within
Texas. In addition, the Texas legislature recently enacted a provision for the
sale of electric energy by exempt wholesale generators and power marketers at
the wholesale level. Although TU Electric and Southwestern Electric Service
Company (SESCO) are unable to predict the ultimate impact of the Energy Act and
any related regulations or any state legislation or PUC regulation on their
operations, they believe that such actions are consistent with the trend toward
increased competition in the energy industry.
While TU Electric and SESCO have experienced competitive pressures in the
wholesale market resulting in approximately 354 megawatts (MW) loss of load for
TU Electric since the beginning of 1993 and notifications of the possible
termination of approximately 600 MW through 1999, wholesale sales represented
a relatively low percentage of total consolidated operating revenues in 1994.
TU Electric and SESCO are unable to predict the extent of future competitive
developments in either the wholesale or retail markets or what impact, if any,
such developments may have on their operations.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION -- (CONTINUED)
RESULTS OF OPERATIONS
THE COMPANY
For the three-, nine- and twelve-month periods (excluding the after-tax
effect of the asset impairment), consolidated net income increased
approximately 22%, 15% and 21%, respectively. For the Company and TU
Electric, from which most of consolidated earnings is derived, the major
factors affecting earnings for the three-, nine- and twelve- month periods were
continuing cost reduction efforts and customer growth, offset by mild weather
conditions for the nine- and twelve-month periods.
In September 1995, the Company recorded an impairment of several
non-performing assets, including the partially completed Twin Oak and Forest
Grove lignite-fueled facilities of TU Electric, and Chaco's coal reserves in
New Mexico, as well as several minor assets. Such impairment, on an after-tax
basis, amounted to $802 million. (See Note 6 to Condensed Financial
Statements.)
TU ELECTRIC
Operating revenues increased approximately 4% for the three-month period,
and decreased 1% for the nine-month period and 2% for the twelve-month period
ended September 30, 1995. The following table details the factors contributing
to these changes:
INCREASE (DECREASE)
--------------------------------------------------------------------
FACTORS THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
------ ------------------- ----------------- --------------------
THOUSANDS OF DOLLARS
Base rate revenue (billed) . . . . . . . . $ 35,059 $ 23,184 $ 53,919
Fuel revenue . . . . . . . . . . . . . . . (12,693) (72,375) (135,984)
Power cost recovery factor revenue . . . . (1,389) (6,351) (13,238)
Unbilled revenue and other . . . . . . . . 52,996 (12,447) (1,788)
--------- ---------- ---------
Total . . . . . . . . . . . . . . . . . $ 73,973 $ (67,989) $ (97,091)
========= ========== =========
Total energy sales (including unbilled energy sales) increased approximately 5%
for the three-month period and approximately 1% for the nine- and twelve-month
periods. The effect on billed energy sales and base rate revenue for all
periods was primarily a result of an increase in customers and billing cycle
days partially offset by mild weather conditions and loss of wholesale power
sales. The decrease in fuel revenue for all periods was primarily due to
continued reduction in gas prices and also, for the twelve-month period,
increased nuclear generation as compared to the prior period. The change in
unbilled revenue and other for the three-month period resulted from milder
weather conditions and was affected for all periods by increased power
marketing sales.
Fuel and purchased power expense decreased approximately 3%, 6% and 8% for
the three-, nine- and twelve-month periods, respectively, primarily due to
continued reduction in gas prices and purchased power commitments and, for the
twelve-month period, increased utilization of nuclear fuel.
Total operating expenses, excluding fuel and purchased power, increased
approximately 5% for the three-month period, decreased 1% for the nine-month
period and increased less than 1% for the twelve-month period. Operation and
maintenance expense decreased for all periods due primarily to a decrease in
employee benefit expenses, uncollectible accounts expense and material and
supplies expense. Federal income taxes increased for all periods due primarily
to lower operating expenses. For the nine- and twelve-month periods, a
reduction in taxes other than income was primarily attributed to a decrease in
the Company's ad valorem tax obligation.
Allowance for funds used during construction (AFUDC) decreased approximately
22%, 15% and 20% for the three-, nine- and twelve-month periods, respectively,
primarily due to a reduction in the gross rate used for capitalizing AFUDC.
23
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION -- (CONCLUDED)
RESULTS OF OPERATIONS -- (CONCLUDED)
In September 1995, TU Electric recorded an impairment of several
non-performing assets, including the partially completed Twin Oak and Forest
Grove lignite-fueled facilities. Such impairment, on an after-tax basis,
amounted to $316 million. (See Note 6 to Condensed Financial Statements.)
Federal income taxes -- other income decreased for all periods primarily due
to the effect of recording the taxes associated with the asset impairment.
Total interest charges, excluding AFUDC, decreased approximately 5% for the
three-, nine-, and twelve-month periods. Interest on mortgage bonds decreased
over the prior periods as a result of reduced interest requirements due
to the Company's refinancing efforts, partially offset by increased interest
requirements for new issues sold. Interest on other long-term debt was
affected in all periods due primarily to borrowings on the term credit
agreement offset by the continuing retirement of debt incurred on the
purchases of the minority ownership interests in Comanche Peak. Other
interest expense was affected by decreased interest on bonded rates over the
prior period partially offset by increased average short-term borrowings and
increased amortization of debt issuance expenses and redemption premiums.
Preferred stock dividends decreased approximately 12%, 16% and 16% for the
three-, nine- and twelve-month periods, respectively, due to the redemption of
certain series.
24
25
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
ITEM 1. LEGAL PROCEEDINGS
THE COMPANY
The Antitrust Division of the U.S. Department of Justice has submitted to
the Company a civil investigative demand (CID) dated October 24, 1995. This CID
appears to request documents and information relating to an investigation of
whether alleged tying arrangements or other actions that unreasonably deny or
condition access to TU Electric's transmission system by others have occurred
in violation of certain antitrust laws. While the Company intends to comply
with requests within appropriate purview of Department of Justice, it
believes it has not violated such antitrust laws. The Company is unable to
predict the outcome of any such investigation.
ITEM 5. OTHER INFORMATION
ACQUISITION
THE COMPANY
In November 1995, the Company announced that it had reached an
agreement to acquire Eastern Energy Limited for $1.55 billion. Eastern Energy
Limited is an Australian electric distribution company serving 470,000
customers, including a portion of the Melbourne, Victoria metropolitan area.
RATE PROCEEDINGS
TU ELECTRIC
Reference is made herein to Note 5 to TU Electric's Condensed Financial
Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
15 - Letters from Deloitte & Touche LLP as to unaudited interim
financial information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
(b) Reports on Form 8-K filed since June 30, 1995 are as follows:
Date of Report Item Reported
-------------- -------------
THE COMPANY
-----------
October 17, 1995 Item 5. OTHER EVENTS
TU ELECTRIC
-----------
October 17, 1995 Item 5. OTHER EVENTS
October 26, 1995 Item 7. FINANCIAL STATEMENTS AND EXHIBITS
25
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXAS UTILITIES COMPANY
By /s/ H. Dan Farell
---------------------------------------
H. Dan Farell
Controller and
Principal Accounting Officer
Date: November 7, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Marc D. Moseley
---------------------------------------
Marc D. Moseley
Controller and
Principal Accounting Officer
Date: November 7, 1995
26
27
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
15 - Letters from Deloitte & Touche LLP as to unaudited interim
financial information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company